Deposit protection scheme could provide boost for builders

Fees paid to builders and construction workers should be held in a protected scheme to ensure customers pay up, according to industry proposals set to be put forward in Parliament.

In a letter to the Daily Telegraph a consortium of more than 20 trade associations representing builders, plumbers and electricians have warned of a "growing problem" of local councils and big businesses withholding chunks of their fees long after after the work is completed.

They claim the legal practice, which is being used by large organisations to make their own business accounts appear healthier, is financially crippling construction companies forced to wait for payments for up to two years.

At present these so-called "retention deposits" are held in customers' bank accounts meaning there is no guarantee that the money will ever be paid.

But under the plans laid out by the industry, retention deposits would be held in a protected trust, similar to the existing protection schemes which hold private sector renters' deposits.

To prevent delayed and non-payments, new rules would need to be brought in simultaneously to make the schemes compulsory for customers wishing to hold retention payments.

The scheme would ensure money owed is released a short time after work is completed to an acceptable standard.

The Department for Business, Energy & Industrial Strategy is currently consulting on retentions and it is understood that the proposals laid out in the letter will be read out in Parliament by Conservative MP Peter Aldous in January.

Some £10.5 billion of the overall construction sector turnover of £220 billion is held in retentions by clients, the letter claims.

Meanwhile an estimated £7.8 billion in retention money has been unpaid in the construction sector over the past three years, while £700 million was lost due to insolvencies.

Paul Reeve, director of the ECA, the business, electrotechnical and engineering services trade body, said: "The system is crippling our industry and needs to change. Retentions create a burden of uncertainty which makes it difficult to buy new equipment and to develop business.

"We operate on tight profit margins of around 2.5 per cent so when customers don't pay it is a real problem.

"The problem is getting worse because there is more temptation to hold onto the money. Businesses and councils can use the money to make their balance sheets look better, or they can invest it on the stock markets, or offshore."

It is thought that the scheme could eventually be used to protect consumers from rogue builders who do botched work or fail to complete jobs.